In the GDP accounting of countries such as China and the United States, why should "rent" be applied to residents' own housing?The reasons involved and the logic behind this require us to conduct in-depth research.
In China's National Accounting System (2016), which was revised by the National Bureau of Statistics, it is mentioned that the housing ownership of residents in China's urban and rural areas needs to be included in the scope of national accounts. Even if the resident only lives in the house he purchased and does not actually lease it, he or she needs to "make a virtual rent" and include it in the GDP accounting. This practice has long been widely used in European and American countries, and it is one of the reasons why the added value of real estate in the United States and its share of GDP are relatively high.
In order to better understand this approach, we need to know more about its context and purpose. First of all, buying a home is an investment for an individual, and it is a fixed asset investment. Both consumption and investment need to be included in the scope of GDP accounting. However, fixed asset investment needs to be split and calculated in a certain way, and the benefits it brings need to be taken into account. For those residents who buy homes to rent out, rent is the proceeds of their housing investment. For residents who buy houses to live in, how to account for and count this income has become a problem.
This leads to the second question, which is how to determine the fictitious rent of resident-owned housing. In Western countries, the rental market is relatively well-developed, and the fictitious rent of residents' own housing can refer to the actual rent of surrounding types of housing and be fictitious. In China, the cost method of accounting was mainly used in the past. Prior to the first national economic census in 2004, depreciation was 2 per cent per annum for rural residents' own housing and 4 per cent per annum for urban residents' self-owned housing, based on the cost of purchasing the house. This costing method of virtual rent allows the value of the house to be depreciated by a certain percentage and used to be included in the GDP accounting.
However, with the development of China's real estate market and changes in the economy, the limitations of this cost method of accounting have gradually emerged. Therefore, in the 2016 revision, the National Bureau of Statistics put forward the goal of gradually moving closer to the market rent method. Through the gradual introduction of the market rent method, the value of residents' homeownership and its contribution to the economy can be more accurately reflected.
So, how specific is the gradual approach?The National Bureau of Statistics has given a clear answer to this question. According to their responses, except for first- and second-tier cities, the housing rental market in most urban areas in China is underdeveloped, the proportion of rental housing is relatively low, and the rental data is also less representative, so the cost method is still used. This means that in these areas, the fictitious rent of resident-owned housing is still calculated according to the cost method.
In response to this answer, some netizens said that it was difficult to understand. They think that their house is just for themselves, and there is no actual rental, so why should they calculate rent as part of GDP?However, we need to understand that from the perspective of macroeconomics, buying a house is an investment behavior and belongs to the category of fixed asset investment. Therefore, it is reasonable and necessary to include the value of residents' own housing in GDP accounting. In addition, all kinds of production equipment and office supplies purchased by enterprises also need to be calculated according to the depreciation method, and they are included in the GDP statistics year by year, rather than all of them being included in GDP at one time.
In general, the "rent" accounting of resident-owned housing is to accurately reflect the value of its investment and its contribution to the economy. Through the calculation of virtual rent, the capital investment of residents to purchase houses can be included in the scope of GDP accounting, so as to avoid omission and unreasonable situations. In addition, with the gradual implementation of the market leasing law, we can more accurately reflect the value of housing and market changes, and further improve the national accounts system to more accurately assess the development of the economy and the well-being of residents.
However, it is worth noting that the fictitious rent of resident-owned housing is not included in the GDP accounting at one time, but is calculated according to a certain percentage of depreciation. This means that the cost of buying a house will not be fully accounted for in GDP in the short term, but will be accounted for in batches. This treatment takes into account both the ongoing value of the house and the accuracy of the GDP statistics.
To sum up, China and the United States and other countries have implemented "rent" for residents' own housing in GDP accounting in order to more accurately reflect the value of real estate investment and its contribution to the economy. Through the calculation of virtual rent, the value of the house can be included in the scope of GDP accounting, so as to avoid underreporting and unreasonable situations. According to the relevant provisions of China's National Accounting System (2016) revised by the National Bureau of Statistics, the housing rental market in most urban areas in China is not well developed, the proportion of rental housing is relatively low, and the rental data is weakly representative, so the cost method is still used to calculate the virtual rent of residents' own housing. Such an approach is not only in line with international practice, but also facilitates a more accurate assessment of economic development and the well-being of the population.
